India: Suing A Foreign State In India: Piercing The Veil Of Sovereign Immunity

With the increase in significance and promotion of foreign
investment in India and the setting up of various agencies for this
very purpose, multifarious moves towards deregulation and
liberalization of the Indian economy have come to the fore. The
government is taking various routes to facilitate and broaden
Foreign Direct Investment inflows into India.

As far as foreign investors are concerned, India is definitely
emerging as an attractive destination. However, a growing concern
among the host country recipients is the recourse they might have
against these investors.

The concern becomes graver, when the investors are foreign-state
controlled investors and a thick veil of sovereign immunity
protects them.

Sovereign Immunity in India

India, like all other countries in the world recognizes the
maxim, "par in parem non habet imperium", which
translates to, "one sovereign state is not subject to
jurisdiction of another state".

India has signed the United Nations Convention on Jurisdictional
Immunities of States and their Property on 12th January 2007.
However, India has neither ratified nor accepted, approved or
acceded to the said treaty. Hence, unlike other countries, such as
UK and US, India has no separate legislation in this respect.

In India, the sovereignty of foreign states is generally
recognized, but an exception is carved out under Section 86 of the
Code of Civil Procedure, 1908 where any person may sue a foreign
state in any court with the consent of the Central Government. The
provision starts with the general rule, that no foreign state may
be sued in any court, and then carves out the exception of the
consent of Central Government by a Certificate in writing by the
Secretary of the State.

Another exception carved out is that a tenant of an immovable
property may sue the foreign state from which he holds the
property.

The section further goes on to discuss the conditions under
which the Central Government may give permission, which are as
follows:-

If the foreign state has instituted a
suit in the court against the applicant.

If the foreign state, by itself or
another, trades within the local limits of the Indian court.

If the foreign state's immovable
property, in respect of which the applicant want to sue is situated
in India.

If the foreign state has waived
privilege of Section 86.

The bar in the section is not only against suing, but also
against execution of any decree against the property of a foreign
state.

The section further expands the scope of application of the
immunity to ruler of a foreign state, an ambassador or envoy, High
Commissioner of a Commonwealth Country, any such other member of
staff of the previous category, as the Central Government may
specify.

The section further bars the arrest of the aforementioned
category of persons.

Further, following the principles of natural justice, the
provision provides for giving a reasonable opportunity of being
heard, in case a request is rejected under this Section.

To clarify the meaning of foreign state in the aforesaid
section, Section 87A provides that a "foreign
state" means any state outside India recognized by the
Central Government.

Jurisprudence on Section 86

One of the first cases to touch upon the law in Section 86 was
the case of Mirza Ali Akbar Kashani vs. United Arab
Republic and Anr.1 In this case, a suit was
filed against the United Arab Republic and the Ministry of Economy,
Supplies, Importation Department of Republic of Egypt at Cairo, for
recovery of damages for a breach of contract.

The court first and foremost discussed whether India recognizes
the State or not and having answered the question in affirmative,
moved forward to discuss the law.

The question discussed was whether the consent under Section 86
was required in this case or not. Having discussed the recognition
of sovereign immunity of foreign states by the Indian Legislature,
the court went on to hold that the provision of Section 86 indeed
was required to be followed in this case.

As regards the nature of order to be passed by the Central
Government in response to an Application under Section 86, it has
been held that if a refusal is accorded, then the refusal should
state cogently the reasons for such refusal. Merely citing vague
reasons such as "unable to give permission on political
grounds" will not suffice.2 The Apex Court has
further recognized that although an Order under Section 86 is in
the nature of an administrative order, the order is required to
follow the principles of natural justice because they decide the
rights of the parties.3 Such reasons are required to be
clear and explicit.

In another case, where a government instrumentality of a foreign
state was sued for recourse, without seeking permission under
Section 86, the issue of the stage at which such objection should
be decided was dealt by the Court. It was held that "the
question whether a suit should be entertained, cannot be deferred
till the stage of the final disposal of the suit .... the object of
Section 86 is to save foreign states from being harassed ... if the
foreign state is required to file a Written Statement and to
contest the said suit ... the very object and purpose of Section 86
shall be frustrated." The bar of Section 86 can be taken
at the earliest opportunity and court concerned is expected to
examine the same.4

Waiver of Privilege: When not to seek consent

In various cases, the Indian courts have recognized waiver of
privilege by foreign state owned entities. This waiver may be
express or implied.

The question of the applicability of Section 86 to the Ethiopian
Airlines lay before the Hon'ble Supreme Court of India in case
of Ethiopian Airlines vs. Ganesh Narain
Saboo5. The proceedings had
been filed under Consumer Protection Act, 1986 and the contentious
issue was whether permission under Section 86 was required.

It was observed that the Consumer Protection Act, 1986 and the
Carriage by Air Act, 1972 were specific statutes which would
prevail over the general statute of Code of Civil Procedure, 1908.
It was further observed that Carriage by Air Act, 1972 was passed
to give effect to the Warsaw Convention, 1929, to which Ethiopia is
also a party. In effect a reading of the Warsaw Convention, 1929
and the Carriage by Air Act, 1972 make it evident that these
provisions apply to Airlines of any nationality.

From the above reading, the Apex Court had made it clear that
the implication of the Convention and the Act were twofold:-

The Central government had already
given consent under Section 86 by having enacted the Carriage by
Air Act, 1972.

The Foreign State of Ethiopia had
impliedly waived privilege by signing the Warsaw Convention,
1929.

The effect was that these acts being special provisions, no
permission was required under Section 86 to sue the Ethiopian
Airlines.

Interestingly enough, even though the statute does not deal with
the commerciality of the transaction as being a factor for
determining the Applicability of the provision, the Apex Court had
gone a step further and said that the commercial nature of the
transaction would itself make sovereign immunity inapplicable.

Similarly, the Bombay High Court6 recognized a delay
of 16 years in raising the plea of immunity under Section 86, as an
implied waiver of the privilege.

Conclusion

To conclude, it may be said that with the increase in foreign
investment, the interaction between foreign state immunity and the
rights of citizens to enforce their remedies against the foreign
state sponsored investors would gain much more importance, in which
scenario, the jurisprudence on the subject is expected to develop
and gain momentum.

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